In January we invited our readers to ask Robert McMurray, a chartered accountant, for advice or information regarding issues around taxation and being an artist. The following are three interesting questions, which we felt would be of interest to all of you. Please write in, as Robert will continue to answer questions in both our March and April issues of our newsletter.

Hi Robert:
I read with interest the article in the January Opus Visual Arts Newsletter re: REOP. I started framing and trying to sell my art this year but have not sold anything to date.

I have had a whack of expenses and wondered how I could claim them. I am receiving some pensions (CP and small teacher's). Do you know of any references on the Internet as a follow up from your article?

Much appreciated.
glyn humphries

Hi Glyn:
Firstly, I assume that you are producing artworks on a steady basis and are making an effort to sell your work through the usual channels and therefore, generate a profit in the process. If that is the case then you are in business and you are in pursuit of profit and the current case law says that you can claim your expenses against your revenues in your tax return and if the expenses exceed the revenues, whether or not you have any sales, the excess represents a business loss that can be applied against other taxable income for the year.

The REOP test is not presently operable unless there is a personal element in your business activities. It's been proven that job satisfaction is not a personal element in this sense. However, if you did want to read up on and/or comply with the criteria used in the REOP test you can find them in the Canada Revenue Agency Interpretation Bulletin Number 504R2, available at your local CRA office. There is also an article published on the web site of the Federation of Canadian Artists, www.artists.ca under Resources, Technical References, The Art of Taxes, that sets out the criteria with my comments. This makes a good checklist and, while you need not meet all criteria, you should meet as many as you can...the better your story, the better your chances.

Best regards,
Bob

Hi Robert,
Thank you for your time to help artists with their tax questions. I'm a ceramic artist and I work fulltime as an art teacher. I would like to start my own small business this year and start possible sales and commissions, but I do plan to continue to work as an art teacher. Do I need a business license to file a tax return with my sales and commissions or could I just file a separate tax return stating my ceramic art earnings. Should I combine my earnings with my teaching salary? Is it better to keep these two incomes separate. I'd like to start this year and set up my record keeping properly. I hope you can help.

Thanks for your time,
Rita Yip

Hi Rita:
Technically, you should get a business license but in practice many artists do not do so unless or until they are asked to do so by the local authorities. You do not need a business license to include your business accounts (sales and commissions) in your tax return but it is evidence that you are operating in a business-like manner.

Your annual income tax return should include income from all sources and the definition of ?income? includes losses. Therefore you would report your teaching salary and your business income (or loss) in your tax return for the year. You need to keep records for your business income and expenses so that they can be identified and totaled by type for the calendar year 2005. You will also need to make an inventory of supplies, materials and equipment as at January 1, 2005, that you had on hand and had purchased prior to 2005. This inventory should be valued at the lesser of cost or realizable value and forms your starting point.

There is a long list of items that you should account for and these are set out in an article on our firm web site at www.mrhw.com under ?What's New?, ?The Art of Taxes? if you'd care to review them.

Best regards,
Bob

Hi Robert.
I have a question regarding GST/PST. If I sell prints to a gallery, I don't charge any GST/PST. If I sell prints directly to the public myself, should I charge taxes, do I need to register with anyone?

I am planning also to sell prints through a local Heritage Church, and intended to give them half of the profit for every print I sell as I would if I was selling prints through a gallery or any retail outfit. Can I do that (because for me it is just a outlet to sell my work) or do I have to pay tax as if it was a donation to a charity? Regards Julia Hargreaves

Hi Julia:

If you are not registered for GST or PST, you do not collect any of these taxes on your sales. If you sell through an art gallery they collect and remit these taxes and send you your share of the net sale amount (less the taxes). There are, however, a number of issues for you to consider regarding these taxes and they are discussed at length in a previous Newsletter article under ?Archives?, ?May 2003?, at www.opusframing.com

If your work is being sold through the Heritage Church, they are acting in the same manner as a gallery and normally you would report only the net amount that they pay you. If they issued a donation receipt to you for the portion that they retain you have an option. You may designate a number between zero and the amount of the receipt and then add that amount to your revenues and claim a donation tax credit on the same amount. Unless you are in the top tax bracket it will be to your advantage to use the full amount of the receipt for both the revenue and the tax credit.

Best regards,
Bob